U.K. Lockdown Threatens Bull Market

Stocks are falling this morning as tech leads the market lower. The Dow, S&P, and Nasdaq Composite are all down after opening for a small gain.

And Big Tech, in particular, is enduring the brunt of the selling. FAANG stocks, plus Microsoft (NASDAQ: MSFT), sit beneath moderate losses. Tesla (NASDAQ: TSLA) plunged 5.2% in response to a disappointing “Battery Day,” in which CEO Elon Musk revealed a new battery design that should make Tesla vehicles cheaper to manufacture.

But the batteries themselves weren’t really the highlight of Musk’s presentation. Instead, investors fixated on his less-than-stellar Q3 guidance and Cybertruck production delays.

The biggest drag on the market, however, was a new U.K. shutdown, authorized yesterday. The British government is now imposing a second round of strict lockdown measures in an attempt to keep a lid on Covid-19.

“The U.K. just shut down again. They just announced that they’re going to do a shutdown, and we’re not going to be doing that,” President Trump said in an interview this morning.

“We understand the disease, we understand how to handle it.”

Another lockdown in the U.S. would likely be economic – and possibly political – suicide at this point. Yes, a recovery is in process, but America still has a long way to go.

To many analysts, Trump’s position should encourage bulls to return to the market.

“As soon as the S&P 500 reached the official correction zone near a 10% decline […] ‘dip buyers’ emerged and have been evident ever since,” explained Jim Paulsen, chief investment strategist at The Leuthold Group.

“These buyers, armed with cash holdings, may be driven less by the ‘fear of missing out’ than they are by the ‘opportunity to finally get in.’”

When asked about the market’s strong finish yesterday, Paulsen added:

“Optimism broadened as the day progressed lifting not only technology and communications stocks for the second day, but ending with eight of the 11 sectors within the S&P 500 Index in the green.”

Back in mid-June, the major indexes experienced a similar “shakeup” after they suddenly plummeted over 5% in a single day. The market chopped sideways for several trading sessions before finally resuming its climb.

And much like last time, the current dip should also be followed by a period of high volatility – something that will undoubtedly frustrate traders looking to get long at discount prices.

But the headache might be worth the wait if a stimulus bill, or even a significant vaccine development, arrives in the near future. Johnson & Johnson (NYSE: JNJ) just announced this morning that it began its phase 3 coronavirus vaccine trials. At present, there are four drugmakers (including JNJ) in late-stage vaccine testing. At least one of the companies involved should have test results within the next four-to-eight weeks, if not sooner.

So, can bulls hang on until then? It certainly seems like it. A major correction hasn’t happened. Relative to where the market was in June, it’s still in an uptrend. Stocks remain above their early June highs.

That might be enough to keep equities afloat for the time being. Even without a bombshell Covid headline to help out.


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